This is the first of a four-part series whereby I discuss the notice requirements for material suppliers in Louisiana for private, public and federal jobs. The final part of the series discusses other legal remedies that may be available to a material supplier in addition to or in the absence of a properly filed lien. The discussion below applies to Private projects.
Private Works Act
If the property subject to construction is privately-owned, then the Louisiana Private Works Act controls. See La. R.S. 9:4801 et seq. The Act provides for two rights for those who work and/or supply materials on immovable property, regardless of contractual privity: (1) the right to sue the owner and contractor for the amounts owed; and (2) the right to assert a lien or privilege against the property to secure the claim against the owner.
Under La. R.S. 9:4801, sellers have a privilege on an immovable to secure the price of movables sold to the owner that became component parts of the immovable, or are consumed at the site of the immovable, or are consumed in machinery or equipment used at the site of the immovable. It should be noted that, under La. R.S. 9:4808(D), the Louisiana Private Works Act does not apply to:
(1) The drilling of any well or wells in search of oil, gas, or water, or other activities in connection with such a well or wells for which a privilege is granted by R.S. 9:4861.
(2) The construction or other work on the permanent bed and structures of a railroad for which a privilege is granted by R.S. 9:4901.
(3) Public works performed by the state or any state board or agency or political subdivision of the state.
In addition to the privilege against the property granted to claimants, the owner is also personally liable to them under certain condition, even though the owner has not direct contractual relationship with the claimants. In order to protect himself from personal liability under the statute, the owner must execute and record a written notice of contract prior to the commencement of the work and attach to the notice a surety bond in an amount specified in the statute, La. R.S. 9:4812. Failure to satisfy these requirements leaves the owner’s property subject to the privilege in addition to leaving him personally liable. The term “owner” includes both persons in perfect ownership of the property and persons with rights to the property such as lessees.
Sellers of building materials have a privilege covering the principal and interest of their claims and the cost of recording the privilege upon the land and improvements on the materials, machinery or fixture furnished. See La. R.S. 9:4802 and La. R.S. 9:4803. The sellers must be able to prove that (1) the materials were delivered to the job site, and (2) they were actually incorporated or consumed in the work. By proving the first fact, the law gives the seller the benefit of a legal presumption that the delivered materials were incorporated. This presumption can be rebutted only by proving actual non-incorporation. See H.G. Angle Co. v. Talmadge, 419 So.2d 1151 (La. App 3d Cir. 1981), VVP America, Inc. v. Design Build Development Services, Inc., 951 So.2d 461 (La. Ct. App. 2d. Cir. 2007). This means that the owner or other contractor would have to show that the materials are not in the building! As you can tell, this is hard to do.
Do Suppliers That Supply Suppliers Have Rights? No!
However, a supplier to another supplier does not have these rights under the Private Works Act. In other words, in order to have rights under this Act, a supplier must sell directly to a subcontractor or a contractor. See Cable v. Connector Warehouse, Inc. v. Omnimark, Inc., 700 So.2d 1273 (La. App 4th Cit. 9/12/97). Second tier suppliers do not have rights under the Private Works Act to file a lien.
Furthermore, in the event that a contractor or subcontractor receives money on account of a contract for construction and knowingly fails to apply the money received as necessary to settle claims to sellers of movables due for the construction or under the contract, any seller of movables may file an action for the amount due, including reasonable attorney’s fees and costs, and for civil penalties. So a company that supplies the primary supplier could sue for knowingly not paying on the open account, but there is no recourse against the property or the owner.
Notice Requirements for material suppliers on both residential and commercial projects:
La R.S. 9:4802(G)(3) states, [i]n addition to the other provisions of this Section, if the seller of movables has not been paid by the subcontractor and has not sent notice of nonpayment to the general contractor and the owner, then the seller shall lose his right to file a privilege or lien on the immovable property. The return receipt indicating that certified mail was properly addressed to the last known address of the general contractor and the owner and deposited in the U.S. mail on or before seventy-five days from the last day of the month in which the material was delivered, regardless of whether the certified mail was actually delivered, refused, or unclaimed satisfies the notice provision hereof or no later than the statutory lien period, whichever comes first. The provisions of this Paragraph shall apply only to disputes arising out of recorded contracts.
This means that the notice only needs to be sent properly, actual delivery does not matter. The statute language is odd because it is written in the negative. However, they key is to send out the notice of nonpayment within 75 days of the month materials were delivered to the project.
If the notice of contract is filed, whether timely or not, the statement of claim must be filed not later than thirty (30) days after the owner has recorded a “notice of termination” of the work. La. R.S. 9:4822(A). However, where the notice of contract is filed but notice of termination is not, the time period for making claims is not triggered. See in re Whitaker Const. Co., Inc., 439 F.3d 212 (5th Cir. 2006). But if a notice of contract is not filed, persons granted a privilege under the statute must file a statement of their claim within 60 days after the filing of a notice of termination of the work, or the substantial completion or abandonment of the work, if a notice of termination is not filed. Confusing, right?
Under the Act, work is substantially completed when the last work is performed or materials delivered to the site of the work, or the owner accepts the project, even though minor or inconsequential matters remain to be finished or minor defects or “punch list” items remain to be remedied. La. R.S. 9:4822(c).
The date of substantial completion can be significant in other respects also, because there is Louisiana jurisprudence to the effect that liquidated damages cannot be assessed beyond date of substantial completion, even if the project is not formally accepted. State v. Wilco Const. Co., 393 So.2d 885 (La. App. 4th Cir. 1981), writ denied, 400 So.2d 905 (La. 1981).
Extra Requirement for Residential Material Supplier
Suppliers of materials for residential purposes must satisfy the additional burden of providing timely notice of non-payment to the owner at least ten days prior to filing a claim. La R.S. 9:4802(G)(2). So the 10-day pre-lien notice is required before filing the lien as well as the 75-day notice of nonpayment from when materials were delivered.
Contents Of Statement Of Claim
So what are the requirements of a lien under the act? The statement of privilege (lien) need only be in writing, signed by the person asserting the claim, reasonably identifying the property on which work was performed, and setting forth the amount and nature of the obligation giving rise to the claim.
However, La. R.S. 9:4831 requires a legal description of the property in the statement of claim and states that a municipal number alone is not an adequate description. In order to be safe, one should use the legal description of the property in filing the statement of the claim.
Claims must be filed in the office of the Clerk of Court or Recorder of Mortgages in the Parish where the property is located. The filing date is the significant date, not the actual recording date.
Method Of Enforcement
An ordinary lawsuit must be instituted against the owner to enforce the privilege. The petition should seek to recover the principal amount due, the costs of filing the privilege, and the interest due on the principal. In any lawsuit, the claimant should name in addition to the owner, all parties with whom he has contractual privity to recover under ordinary contract law. In addition, if the general contractor has given a surety bond to the owner, the contractor and surety should also be sued.
The suit may be filed in the district court of the parish where the property or any portion thereof is located.
The suit on the privilege must be filed no later than on (1) year after the expiration of the time for filing claims. The time requirements for filing suit may be satisfied by the claimant’s becoming a party to a previously filed suit arising from the work, or involving the validity, amounts, and priority of other secured interests in the property. La. R.S. 9:4823.
Stay tuned for the next installment, where we discuss these same issues but with regards to a Public Project in Louisiana. Please contact Smiley Law Firm if you have any further questions, we are always happy to help.